The PGA Tour: Where's the Green?

Corporate backers are shying away as sponsorship costs rise

The $7.5 million Genuity Inc. spent to sponsor the PGA Tour event at Miami's Doral Golf Resort & Spa event this past March seemed a small price to pay. It gave the Woburn (Mass.) Internet telecommunications company the chance to fete its clients and build public awareness for its services. With Ernie Els fending off a late charge by Tiger Woods, TV ratings for the Genuity Championship doubled from the prior year, while attendance rose 30%, to 125,000--including hundreds of Genuity clients who were also treated to a talk by ex-General Electric Co. Chairman Jack Welch. But six weeks later, the struggling Net company opted not to sponsor next year's event. Instead, the GTE Corp. spin-off will spend those marketing dollars on smaller, more focused programs, says Jim Freeze, Genuity's chief marketing and strategy officer.

Suddenly, the PGA Tour is struggling to maintain Corporate America's support. While the tech collapse has left sponsors such as Genuity feeling less flush, rising sponsorship fees are also causing many to balk. Sponsorships for 2002 are booked solid, but the PGA is scrambling to find sponsors for 2003. As of early May, 12 of 42 regular tourneys were without sponsors, with such longtime patrons as Anheuser-Busch, Wyeth, and Canon USA opting out and others, such as Federal Express, on the fence. Says Scott Seymour, senior vice-president for golf events at New York sports marketer Octagon: "The stakes are so much higher because of the rising costs of TV and purses."

Indeed, much of the sponsor fade-out can be linked to a rich TV-rights package that the tour sealed with the three largest networks, ESPN, USA Networks, and the Golf Channel last year. The four-year, $850 million deal boosts the tour's TV revenues about 50%, starting in 2003. But it also heaps financial strain on title sponsors, whom the tour requires to spend heavily--some 50% of their total bill--on TV commercials that air during their tournaments. "The PGA has always aligned its corporate-sponsorship agreements with its TV contract, and [the pressure on sponsors to underwrite the TV-rights deal] couldn't have come at a worse time," says Seymour.

For their part, PGA Tour officials attribute the cancellations simply to a sluggish economy. "We obviously have a difficult economic environment, and it's not unusual for our sponsorship to change," says the PGA Tour's chief of operations, Henry Hughes, who expects to unveil several new sponsors for the 2003 tour in coming weeks.

But marketing experts say the backpedaling by sponsors may signal a market glut. Already, the Senior PGA Tour, which has seen thinning attendance as stars such as Arnold Palmer play less and less, has cut out three events. And some say sponsor fees on the flagship tour are causing sticker shock. Says Rick Burton, a University of Oregon sports-marketing professor: "The PGA rights fees have gotten extremely high, so much that the executives at the sponsoring companies are asking themselves, `What's our return on this?"'

Thanks to the one-two punch of costlier TV ads and rising tourney purses--the take at Doral, for instance, has soared from $1.8 million to $4.7 million since the mid-1990s--the average cost of a title sponsorship, now $4 million, could hit $6 million to $8 million by 2006. As a result, some longtime sponsors are seeking alternatives. Anheuser-Busch Cos. dropped its sponsorship of the PGA Tour event in Kingsmill, Va., but quickly agreed to underwrite an event on the LPGA Tour, where fees run about a third of those on the men's tour. Even General Motors Corp.'s Buick Div., which sponsors three PGA Tour events, will bow out as the sponsor of the Callaway Gardens (Ga.) event after this year and instead will underwrite a nationwide amateur tourney called the Buick Scramble.

Ironically, the PGA Tour has one other little problem: Tiger mania. While sponsors are only too happy to hitch their name to the 20 or so events a year that Woods is guaranteed to play, they are less willing to fork over hefty sponsorship fees for the Tigerless tourneys, which usually turn in much weaker TV ratings. These days, a Tiger in the tank may not be enough for the PGA Tour.

By Dean Foust, with Brian Grow, in Atlanta

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